The Relationship Between Ownership Structure And Business Performance

Ownership structure and business performance of Vietnamese commercial banks - 3

foreign ownership. In each commercial bank can exist one to four types of these ownership.

2.2.3.1. State ownership

This type of ownership has shareholders being the State, represented by the State Bank of Vietnam, holding part or all of the shares of domestic commercial banks.

Based on the principle of reciprocal capital, the State Bank of Vietnam intervenes in the business process of commercial banks according to its objectives. These goals can be the implementation of state policies such as hunger eradication and poverty reduction, investment support, production support, monetary policy implementation support, budget revenue increase, profit...

2.2.3.2. Possession of a natural person

A type of ownership with shareholders being domestic and foreign individuals, holding part or all of the shares of commercial banks.

Through the equity holding ratio, these individuals intervene in the business process of commercial banks according to the principle of reciprocal capital, and often pursue the profit goal commensurate with the risk of loss that they have. Acceptable.

2.2.3.3. Foreign ownership

Foreign ownership is a type of shareholder being an individual or an organization in a foreign country that holds part or all of the equity of a domestic commercial bank.

These shareholders also intervene in the business process of commercial banks through the principle of reciprocal capital, and pursue profit goals commensurate with the risks they can accept.

2.3. The relationship between ownership structure and business performance

In enterprises in general and in commercial banks in particular, the ownership structure determines the organizational structure of the management apparatus and business operations. From that

forming strategies and business development goals of each commercial bank. It affects all aspects of commercial banks' business activities and ultimately affects business performance. Thus, the ownership structure will affect the business performance of commercial banks.

In the opposite direction, when commercial banks have different business performance, they will attract different shareholders. This creates a different ownership structure among commercial banks with different business performance. In other words, business performance affects the ownership structure of commercial banks.

In this section 2.3, the author presents the impact of different types of ownership on business performance of enterprises in general and commercial banks in particular.

2.3.1. State ownership and business performance

Based on the view of shareholders' goals, state-owned commercial banks have the task of providing low-cost capital sources to stakeholders for political purposes instead of business efficiency. Shleifer and Vishny (1997) show that state-owned enterprises appear to be owned by the entire population, but in reality are operated by those with highly centralized control but has no right to cash flow and this has made state-owned commercial banks operate inefficiently. In the same vein, Boycko et al. (1996) argue that these firms operate less efficiently than other firms because they may have to serve political goals. The reality is that political goals may not be aligned with profit maximization or corporate value. In addition, the management perspective regarding state-owned enterprises believes that these enterprises are inefficient because there is no mechanism to closely monitor managers. Specifically, this view holds that managers of state-owned companies only operate but not own assets. Therefore, they make little effort

more power in management activities and tend to allocate resources for personal purposes. Combined with the lack of a supervisory mechanism for managers, these factors lead to a tendency for managers to take more risks and lower corporate performance.

Another view on the role of state ownership in business performance is based on the view of information asymmetry, whereby information asymmetry can increase agency costs. leading to a decrease in the efficiency of the firm as a whole (Jensen & Meckling, 1976). Based on the theory of agency costs stemming from information asymmetry, the arguments about the role of state ownership in the efficiency of enterprises in general and commercial banks in particular lead to two-way predictions. opposite directions.

First of all, the first line of argument in favor of a positive role of state ownership on business performance of commercial banks is based on the prediction that state ownership can reduce agency costs by reducing agency costs. information asymmetry. Brealey et al. (1977) and Perotti (1995) show that the state's share of ownership in the listing process helps to limit information asymmetry. The reason is because state ownership is both owned by an internal shareholder and part of an external control system, based on a legal and regulatory framework. Hearn and Piesse (2013) argue that long-term state ownership signals minority shareholder protection, reduces information uncertainty, and limits adverse selection risk. This leads to reduced agency costs and increased business efficiency.

On the other hand, however, it is argued that state ownership can increase information asymmetry and agency costs. If the state is considered as an inside shareholder, it is argued that insiders will know more information than outside investors, leading to an increase in agency costs according to Chiang and Venkatesh (1988). If the state shareholder is considered as a controlling shareholder, there may be a two-way effect of the controlling shareholder on the agency issue. On the one hand, shareholders control

Controlling can better control management activities, align the interests of managers and outside shareholders, leading to reduced agency costs and information asymmetry (Hope et al., 2009). On the other hand, controlling shareholders can take advantage of them and increase information asymmetry (Barclay & Holderness, 1991; Heflin & Shaw, 2000).

Thus, it can be seen that unlike the argument based on political factors, the argument based on information asymmetry can lead to conflicting predictions about the impact of state ownership on business performance. of NHM. However, for emerging markets, which are heavily dominated by state ownership and are generally considered to suffer from more severe information asymmetry problems than developed markets, the argument is made. on the negative impact of this type of ownership on the business performance of commercial banks seems to receive more support.

In addition, the argument that state ownership can reduce information volatility and thereby reduce information asymmetry may not be entirely true for countries, especially emerging countries. Using the bid-ask spread to measure agency costs, Choi et al. (2010) research on an emerging market with many similarities with Vietnam, where China has found a high rate of ownership. State ownership is positively correlated with the bid-ask gap, implying that state ownership increases information asymmetry and increases agency costs. This argument is based on studies showing that political factors dominate equitization decisions, leading to increased information asymmetry in state-owned enterprises (Wei et al. , 2005; Chen et al., 2008).

Therefore, based on this argument, most of the studies have hypothesized the negative relationship between state ownership and business performance of commercial banks. Empirical evidence for this correlation will be presented in the following section.

2.3.2. Foreign ownership and business performance

The arguments about the impact of foreign ownership on the business performance of commercial banks are quite contradictory. On the one hand, the home field advantage hypothesis of Berger et al. (2000) predicts that foreign-owned commercial banks will be at a greater disadvantage when providing the same services as domestic commercial banks, leading to to higher costs and lower profits. These disadvantages come from the geographical distance between the owner and the agent, differences in culture, language, or institutional or supervisory factors. In addition, the market risk theory suggests that foreign-owned firms are more at risk due to market conditions in the host country (Amihud et al., 2002; Berger et al., 2016). and thus may affect performance. In short,

In contrast, the general form of the global advantage hypothesis states that foreign-owned commercial banks have a relative comparative advantage over domestically-owned commercial banks, thereby leading to higher efficiency. better results. This argument is mainly drawn from the point of view of Buch (1997) who argues that foreign investors can bring high-quality technologies and human resources. This increases the business efficiency of the business. In addition, also based on the argument of information asymmetry, foreign ownership often increases the transparency of enterprises through higher requirements on control activities, thereby reducing agency costs and increase business performance. There is ample evidence that foreign ownership improves corporate governance. Gillan and Starks (2003) and Ferreira and Matos (2008) find evidence that foreign investors play a more active role than domestic investors in corporate governance. Boycko et al. (1996), Dyck (2001) and D'Souza et al. (2005) show that firms with a larger share of foreign ownership

the better the quality of governance and the efficiency of the company.

2.3.3. Ownership of natural persons and business performance

Natural shareholders often simply pursue profit goals. Commercial banks with natural person ownership will be interested and choose to invest in areas with higher profits and lower risks than state-owned commercial banks. In addition, natural shareholders will directly manage and use their own capital, directly bear losses and risks arising, so they will be more cautious in investment decisions as well as carry out close supervision. than. This argument assumes that personal ownership has a positive impact on the business performance of commercial banks.

From the point of view of agency costs due to information asymmetry, private ownership can also have a positive or negative impact on the business performance of commercial banks.

The case where natural ownership has a negative impact on business performance occurs when a group of shareholders holding the right to operate a business (internal shareholder group) has more information than a group of non-direct shareholders. executive (external shareholder). The group of internal shareholders conducts group benefits without transparency. Thus, in this case, ownership of natural persons will increase information asymmetry, increase agency costs, and ultimately reduce business efficiency.

In contrast, natural shareholders are the ones who directly benefit from the business performance as well as bear the losses. To protect their interests, these shareholders will make efforts to request information transparency and strengthen supervision. Thereby reducing information asymmetry, reducing agency costs and increasing business performance. Thus, ownership of natural persons has had a positive impact on business performance.

2.4. Empirical evidence on the relationship between ownership structure and business performance of commercial banks

This section will present empirical evidence on the relationship between

state ownership as well as foreign ownership and performance of commercial banks in countries, including developed countries and emerging markets.

2.4.1. State ownership and business performance of commercial banks

According to the argument for the role of state ownership based on agency theory (Jensen and Meckling, 1976) mentioned above, managers of state-owned firms only operate but not own. asset. As a result, they put less effort into management activities and tend to allocate resources for personal purposes. These reasons lead to managers tend to take more risks and lower corporate performance (Barry et al., 2011; Berger et al., 2005; Iannotta et al., 2007; Sapienza, 2004). ).

Up to now, most studies have mainly found a negative correlation between state ownership and business performance of commercial banks, especially in emerging markets such as Barth et al. (2004), La Porta et al (2002), Hasan and Marton (2003), Jemric and Vajcic (2002), Weill (2003), Micco et al (2007), Lin and Zhang (2009), Cornett et al (2010).

Barth et al (2004) and La Porta et al (2002) found that state ownership reduces the efficiency of the commercial banking system. Dinc (2005) pointed out that the lending activities of state-owned commercial banks are influenced by political factors. On a sample of many emerging markets, Mian (2003) noted that state-owned commercial banks have higher provision for bad debts and lower profitability than private commercial banks. Cornett et al. (2010) studied a sample of commercial banks in 16 Asian countries (including Vietnam) and found that state-owned commercial banks operate less efficiently and have higher credit risk than commercial banks. private.

Berger et al. (2005) provide evidence that state-owned commercial banks have low business performance before equitization and after equitization, business performance has improved significantly. tell. Berger et al (2008) studied on a sample of 38 commercial banks in China and found that

State-owned commercial banks have the worst business performance compared to other types of commercial banks.

Lin and Zhang (2009) study on the Chinese market and also focus on the four largest state-owned commercial banks, the results show that this group of commercial banks has less profit, lower efficiency and poor asset quality. than other private or foreign commercial banks. Carvalho (2014) research on the Brazilian market has found evidence to support the hypothesis that state ownership will have a political impact on the lending decisions of state-owned commercial banks.

Using a sample of 6,677 commercial banks from 1995 to 2002 in 179 countries and territories, Micco et al (2007) found many important results. First, in developing countries, state-owned commercial banks tend to have lower profitability and higher costs than other private commercial banks. Second, in industrialized countries, the authors did not find any correlation between ownership structure and performance of commercial banks. Finally, the authors find that the difference in performance between state-owned commercial banks and private commercial banks is driven by political factors, as this difference tends to increase in the period of political election in the studied countries. This helps confirm the theoretical argument about the political role of state ownership in the commercial banking system.

Recently, research by Rahman and Reja (2015) on the Malaysian market found evidence that state ownership reduces the efficiency of commercial banks on two measures of return on assets and return on capital. share.

2.4.2. Foreign ownership and business performance of commercial banks

Like the theoretical argument, empirical evidence on the impact of foreign ownership on the business performance of commercial banks is still inconsistent. Some studies have found the negative impact of foreign ownership on the business performance of commercial banks, supporting the hypothesis of market advantage.

house while some other authors find evidence to the contrary.

In the first direction, Crystal et al (2002) and Naaborg et al (2004) researched on emerging markets and found evidence that foreign owned commercial banks have lower business performance than commercial banks. inland. Research by Lensink and Naaborg (2007) on a dataset of 511 commercial banks in 73 countries from 1998 to 2001 also found similar results when foreign ownership was negatively correlated with business performance. of NHM.

On the other hand, from the perspective of enterprises in general, Denis and McConnell (2003) conclude that foreign ownership has a positive effect on firm value. Lizal and Svejnar (2003) show that privatized enterprises with domestic owners will have more efficiency in the long run, while similar enterprises with foreign owners will In addition there will be an improvement in efficiency. Studying directly on a sample of commercial banks using data from 1996 to 1998, Mathieson and Schinasi (2000) found that the return on equity of foreign commercial banks is higher than that of domestic commercial banks operating in Hungary. Poland and the Czech Republic.

Claessens et al. (2001) studied the difference in efficiency between foreign and domestic commercial banks in 8 countries, both developed and developing, during the period from 1988 to 1995. The authors find found that after the entry of foreign commercial banks, they witnessed a decrease in operating costs in domestic commercial banks, and therefore the study concludes that it is foreign ownership that increases the profitability. efficiency in the domestic commercial banking system.

Hasan and Marton (2003) studied the Hungarian market from 1993 to 1998, they found that foreign commercial banks create a more efficient business environment and thereby promote the entire commercial banking system to increase the effective.

Researching commercial banks in the Polish market, Nikiel and Opiela (2002) find evidence that foreign commercial banks, although not having better profits, are more efficient.

more cost effective than other commercial banks. Jemric and Vajcic (2002) provide evidence that foreign commercial banks operate more efficiently than other commercial banks in Croatia.

Majnoni et al. (2003) concluded that foreign commercial banks have higher profitability than domestic commercial banks. Considering further the impact of economic growth on the relationship between foreign ownership and business performance of commercial banks, Demirguc-Kunt and Huizinga (1999) provide evidence that in developed countries, the Foreign commercial banks have lower profitability than domestic commercial banks, while the opposite occurs in developing countries where foreign commercial banks tend to be more profitable than domestic commercial banks.

Bonin et al. (2005) is one of the influential studies on the relationship between ownership structure and efficiency of commercial banks in economies in transition. The authors use a sample of 225 commercial banks in 7 transition economies between 1996 and 2000. The results from this study support the role of foreign ownership when it is found that commercial banks have ownership. Foreign banks provide better services and operate more efficiently than other commercial banks, especially when commercial banks have a strategic partner that is a foreign institution. This is consistent with the argument for the role of foreign ownership in technology transfer.

The study by Micco et al. (2007) mentioned above also provides evidence that foreign owned commercial banks have higher profitability and lower costs than other commercial banks. Berger et al (2008) researched on the Chinese market and found that the group of foreign commercial banks has the highest business performance. Even a very small percentage of foreign ownership in the group of state-owned commercial banks can significantly improve the performance of this commercial bank.

Rokhim and Susanto (2013) research on the Indonesian market also supported the positive role of foreign ownership in business performance.

business of commercial banks, in which foreign commercial banks outperform domestic commercial banks in terms of both profitability and cost savings. In agreement with this view, Jemric and Vajcic (2002), Weill (2003), Grigorian and Manole (2006), and Yildirim and Philippatos (2007) all found evidence of increased effectiveness in performance. Commercial banks of foreign ownership.

2.4.3. Private ownership and business performance of commercial banks

Iannotta et al. (2007) studied 181 large commercial banks in Europe from 1999 to 2004. The authors found that commercial banks with natural person ownership have higher profitability than commercial banks with home ownership. country. In addition, this group of commercial banks also has better loan quality than state-owned commercial banks.

Conclusion of chapter 2

A review of previous empirical studies shows that State ownership, foreign ownership, and private ownership can positively or negatively affect business performance depending on the characteristics of each economic environment. research sample. Thus, in this chapter 2, we have answered the first research question: "How does the ownership structure of commercial banks affect the business performance of commercial banks?"

CHAPTER 3: RESEARCH METHODS, RESEARCH MODEL

3.1. Research Methods

On the basis of the overall goal of the study is to analyze the impact of ownership structure on the business performance of commercial banks in Vietnam, the author uses the following research methods:

3.1.1. Qualitative method

This thesis uses the following qualitative research methods:

- Synthesis: Collecting data in the form of panel data of 30 commercial banks operating continuously for 16 years (from 2002 to 2017).

- Analysis: Consider setting the variables, determine the measure of each variable in the research model. Check the uniformity and representativeness of the collected data.

- Comparative comparison: Comparative comparison of the fluctuations of dependent variables and independent variables during the research period.

3.1.2. Quantitative methods

In the quantitative research section, the author inherits the studies of Mico et al (2007), Lin and Zhang (2009), Lensink and Naaborg (2007) and proposes to use multiple linear regression models to estimate The number of factors affecting the business performance of Vietnamese commercial banks on the basis of collected panel data.

3.2. Research models

it  = α  + α  GOE it  + α  FOE it  + α  IOE it  + α  X' it  + ε it  Where:

-  The dependent variable (Y),  which is the variable showing business performance from the perspective of using assets of commercial banks and selected for research in this topic is:  ROA  - ratio of profit after tax to total assets .

-  Independent variable:

-  Research variables, which are variables reflecting ownership structure, include:

+ GOE  is the state ownership ratio

+ FOE  is the rate of foreign ownership

+ IOE  is the rate of ownership of natural persons

-  Control variable (X'), is a variable that represents macro factors, showing the difference in management efficiency, including:

+  LOE  is the ability to attract capital from the economy

+  LOD  is the investment efficiency of mobilized capital

INF  is the inflation index 

GDP  is the growth  index of gross domestic product

-  is  the error in the regression model

-  α  is the correlation coefficient

Table 3.1: Summary of variables in the research model

Variable symbol

Variable name

Calculation formula

first

Dependent variable

 

ROA

Profit after tax rate

on total assets

Profit after tax/Total

asset

2

Independent variables

2.1

Research variable

 

GOE

State ownership ratio

Home equity

country/Total equity

 

FOE

Foreign ownership ratio

Foreign equity/Total equity

possess

 

IOE

Rate of ownership of natural persons

Equity/Total

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Ownership structure and business performance of Vietnamese commercial banks - 3

Variable symbol

Variable name

Calculation formula

     

equity

2.2

Control variable

 

LOE

ability to attract capital from the economy

economic

Total outstanding balance/Total equity

owned

 

LOD

Investment efficiency of mobilized capital

move

Total outstanding balance/Total deposit

capital movement

 

INF

Inflationary

 
 

GDP

Growth of GDP

 

Source: Author's proposal  With the variables described above, we have a specific research model as follows:  Y it  = α  + α  GOE it  + α  FOE it  + α  IOE it  + α  LOE it  + α  LOD it  + α  INF t

+ α  GDP  + it

3.3. Implementation process

Step 1:  Analyze descriptive statistics

Briefly describe the characteristics of the data on the inputs and outputs of the selected commercial banks: mean value, maximum value, minimum value, standard deviation

Step 2:  Check for multicollinearity

Check the relationship between the variables in the model, check the correlation between the independent and dependent variables as well as between the dependent variables to detect the phenomenon and degree of multicollinearity of the variables in the model. research model (using correlation matrix and using exaggeration factors). Multicollinear processing (if any).

Step 3:  Preliminary regression and model selection test

Using the method of least squares (OLS - Ordinary Least .)

Squares) to estimate the correlation coefficients of variables according to regression models with pooled data (Pooled), fixed effects model (FEM - Fix Effects Model) and random effects model (REM - Random Effects Model). ) and perform tests to choose the appropriate model (F-test; Hausman test).

Step 4:  Test the statistical hypothesis

Perform the change variance test (Brush pagan test), autocorrelation test (Wooldridge test) for the model selected in step 3.

Step 5:  Regression and overcoming statistical hypothesis violations

Use the method of generalized least squares (GLS - Generalized Least Squares) to estimate the correlation coefficients of the variables according to the selected model, and at the same time overcome the phenomenon of variable variance and autocorrelation (if any).

Step 6:  Analyze the regression results

Select the best regression results to analyze and evaluate the impact of departmental structure on business performance of Vietnamese commercial banks in the period 2002-2017.

3.4. Research data

Sample data used for analysis and research is collected by the author from various sources

after:

Banking data is collected from Orbis, Bankscope, Annual Report and Prospectus of 30 selected commercial banks (Appendix 1) for a 16-year period, from 2002 to 2017.

Macro data is collected from the World Bank for a period of 16 years, from 2002 to 2017.

Conclusion of chapter 3

Through chapter 3, the author introduced the research method, research model, research process and research data. thereby serving as the basis for the research.

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Date published: 09/04/2022
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